Households will be faced with a rise in home insurance premiums this year as a result of an increase in claims and the decision to leave the EU, according to the AA.
Michael Lloyd, the AA’s insurance director, said: “2016 has been a year when home insurance has not been far from the headlines. It began with more than 16,000 homes flooded, while in April, Flood Re, the government supported scheme to deliver affordable home insurance for households at flood risk, was launched.
“Insurance Premium Tax also increased to 10% from October and will rise again to 12% in June 2017.
“Yet despite these pressures, competition has kept premiums down, but in my view this cannot last much longer.”
While family bills for fuel, car insurance and train fares are rising faster than the rate of inflation, home insurance has actually fallen.
In the latest AA British Insurance Premium Index, the typical quoted premium for a new combined home buildings and contents policy fell by 12.2% last year.
Over the last three months of 2016, the average cost increased by 0.3% to £157.27.
The cost of standalone buildings and contents policies also rose over the year.
The shoparound quoted premium – the average of the five cheapest quotes for each in a nationwide basket of customers – for buildings cover fell by 7.6% over the year, but increased by 1.1% over the last quarter to £114.43.
The cost of contents cover rose by 3.5% over the year but went down 5.7% over the quarter to £60.69.
| AA BIPI – Home insurance shoparound movements | |||||
| 2016 Q3 | 2016 Q4 | Change | 2015 Q4 | Change | |
| Buildings | £113.16 | £114.43 | + 1.1% | £116.36 | – 1.7% |
| Contents | £64.36 | £60.69 | – 5.7% | £68.00 | – 10.7% |
| Combined | £156.76 | £157.27 | + 0.3% | £179.10 | – 12.2% |
| Based on GFK channel preference and arrangement data – June 2016. | |||||
Lloyd believes that the rise in the cost of buildings cover and combined policies suggests that premiums are unlikely to fall much further.
“Home insurance isn’t subject to the same kind of pressures faced by motor insurance – such as whiplash injury claims.
“A report by analysts Ernst & Young (E&Y) last year suggested that 2017 will see home insurers making underwriting losses as costs of claims including managing fraud overtakes premium income. Insurers have been using their reserves to help stay competitive which is unsustainable in the longer term.”
He said that the impact of the Brexit vote, including a weaker pound and poorer insurer investment returns, will also lead to premium increases.
“I also believe in a culture where many hard-pressed families simply buy on price, it is important that they make sure the cover they buy meets their needs. Families must also make sure they properly calculate the value of their contents to avoid under-insurance.
“Informal industry estimates suggest that up to a third of those who have insurance are under-insured. This means that in the event of a large claim, they are likely to find the pay-out is reduced by the percentage shortfall of cover.”
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Please explain why brexit would have any effect in this. We don’t import insurance, bond and stock market returns are good. There is no logic I can see suggests why brexit should affect premiums
Perhaps levels of cover may need to increase if repair and replacement costs rise for imported materials and goods as a result of a weaker pound? See this item from Jan 2017:
https://www.fmb.org.uk/about-the-fmb/newsroom/70-of-builders-report-material-price-hikes/
“70% of UK builders have seen an increase in material prices due to the depreciation of the pound, new research from the Federation of Master Builders (FMB) has revealed.”
Increase in claims yes, if anything Brexit will make insurance claims go down, those most likely to claim are low income households who if from Europe will find it harder to immigrate going forward.